FACTS:

Tambunting Pawnshop received an assessment notice from the Commissioner of Internal Revenue for deficiency value-added tax, deficiency documentary stamp tax on pawn tickets, deficiency withholding tax on compensation, and deficiency expanded withholding tax for the taxable year 1999. In response, Tambunting Pawnshop protested the assessment and filed a Petition for Review with the Court of Tax Appeals (CTA). The pawnshop argued that pawnshops are not subject to value-added tax, they properly withheld and remitted the correct amount of expanded withholding tax, they have already paid the assessed amount for deficiency withholding tax on compensation, and their pawn tickets are not subject to documentary stamp tax.

The First Division of the CTA ruled that the pawnshop is liable for VAT and documentary stamp tax but not for withholding tax on compensation and expanded withholding tax. However, the CTA En Banc dismissed the pawnshop's Petition for Review and Motion for Reconsideration. Unsatisfied with the decision, the pawnshop filed a Petition for Review on Certiorari before the Supreme Court.

Upon review of the case, the Supreme Court held that pawnshops are considered non-bank financial intermediaries and should have been subject to appropriate taxes. The court affirmed the assessment for deficiency VAT and documentary stamp tax but canceled the assessment for deficiency withholding tax on compensation and expanded withholding tax.

ISSUES:

1. Whether pawnshops are subject to Value Added Tax (VAT) under Section 108 of the National Internal Revenue Code.

2. Whether the petitioner properly withheld and remitted the correct amount of expanded withholding tax for the taxable year 1999.

3. Whether the assessment on withholding tax on compensation must be cancelled due to the payment made by the petitioner.

4. Whether petitioner's pawn tickets are subject to documentary stamp tax.

RULING:

1. Pawnshops are liable to pay VAT. Prior to the passage of the EVAT Law in 1994, pawnshops were treated as lending investors subject to the lending investor's tax. However, the Court ruled in Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshops, Inc. that pawnshops are VAT-able enterprises under the general classification of "sale or exchange of services" under Section 108(A) of the Tax Code of 1997. R.A. No. 9238 subsequently classified pawnshops as Other Non-bank Financial Intermediaries. Therefore, pawnshops should have been treated as non-bank financial intermediaries from the beginning and subject to the appropriate taxes provided by law.

2. The petitioner is not liable for the deficiency expanded withholding tax for the taxable year 1999. The assessment for deficiency expanded withholding tax in the amount of P21,723.75 is cancelled and set aside.

3. The assessment on withholding tax on compensation must be cancelled due to the payment made by the petitioner. The petitioner has already paid the assessed amount of P14,398.38 representing deficiency withholding tax on compensation, thus the assessment must be cancelled.

4. Petitioner's pawn tickets are subject to documentary stamp tax. The assessment for deficiency documentary stamp tax in the amount of P406,092.50 is affirmed.

PRINCIPLES:

• Pawnshops are classified as non-bank financial intermediaries and are liable to pay VAT.

• Assessment of deficiency taxes may be cancelled if the taxpayer has already paid the assessed amount.

• Pawn tickets are subject to documentary stamp tax.